Unlocking growth through local deals

Insights Newsletter
31 May, 2024

New Zealand is heavily centralised. This stifles local initiative and contributes to sluggish productivity and anaemic economic growth.  


There is now an opportunity to change this. In the lead-up to the 2023 election, National Party leader Christopher Luxon promised city and regional deals for infrastructure investments. Despite generating lots of interest in local government circles, they are not well known or understood. 


The Initiative's latest research note, “City and Regional Deals”, published this week, casts light on these ‘local deals’. It explains what they are, how they fit with our earlier work on localism, and explores international experiences and lessons. The note also surveys the interest in these deals and options for implementation in New Zealand. 


City and regional deals are formal agreements that align central and local government, with other stakeholders (like businesses, tertiary institutions, and iwi) around agreed strategies and investments for a geographic area. They can provide a pathway for devolving powers and funding from Wellington to the local level. 


International experience shows promise. Done well, city and regional deals have enabled coordinated and streamlined investment in infrastructure, workforce development, and programmes catalysing growth. The 2014 Greater Manchester Devolution Deal unlocked billions in investment by giving the city region control over areas like transport, housing, and skills training. Robust evaluation metrics hold local leaders accountable for delivering results. 


In New Zealand, the benefits of local growth flow to central government, while councils and ratepayers mainly bear the costs. It is little wonder that many councils seem unwilling or unable to embrace growth and development, reinforcing perceptions they are incompetent and unfocused.  


Local deals could change this by better aligning council incentives. Central government should provide revenue shares and allow additional funding tools so councils can enjoy the benefits of growth. But in return, deals need to be carefully designed and negotiated with strong accountability measures to keep all parties focused on what they need to do to deliver results. 


Years of centralisation and imposition of legislation and regulations, mostly unfunded, have reinforced mutual suspicion and mistrust. Making local deals work requires rebuilding trust between central and local governments. This will not be easy, given the lack of capability and capacity in many areas. 


The New Zealand Initiative believes localism is a promising way to boost productivity and living standards across the country. Prosperous communities will be those allowed to chart their own paths forward through local deals.  


They should be given a chance. 


Nick Clark's report, City and Regional Deals, was published on 28 May. 

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